There's no question that the SPAC frenzy has slowed substantially from its frenzied peak late last year, but even as the pace of dealmaking has slowed (giving weary junior investment-banking analysts a rest), there's little question that the SPAC trend has changed the nature of dealmaking, especially for Private Equity firms, as Institutional Investor pointed out. PE firms are sponsoring a growing percentage of SPACs, as these firms take advantage of the power of public markets to generate capital - even as their LPs will always be better positioned thanks to the benefits bestowed on SPAC sponsors (including generous warrants and free stakes).
But as the trend continues to snowball, one company caught the attention of Bloomberg reporters when it announced plans to launch a SPAC specifically to buy back a former subsidiary business that it spun off with a SPAC ln late 2019. So basically, they're launching a SPAC to take over another SPAC. It's a SPAC inside a SPAC for investors who really like SPACs.
But we digress: The scenario revolves around a drugmaker called Roivant Sciences, which wants to merge with a SPAC then take over a SPAC that acquired Immunovant from Roivant.
For those who aren't familiar with its business Roivant is a kind of incubator: it uses its subsidiaries to develop drugs, then takes some of them public.
But here's the key to the whole deal: Roivant says it knows something that everyone else doesn’t about its former unit, and that this special sauce is why it's willing to pay a massive premium for the shares (perhaps as much as 70%).
Those who have closely watched the space say they can't remember seeing a deal like this: "In the years I’ve been analyzing SPACs, I’ve never seen a transaction like this," said Neil Danics, founder of SPAC Analytics in Toronto and who has been providing research on the industry since 2007.
Adding another layer of drama, Immunovant has few obvious opportunities. Human trials on Immunovant’s main prospect, a monoclonal antibody injection aimed at ailments such as myasthenia gravis and thyroid eye disease, were halted in February because of safety concerns. But
Managers at Roivant are pushing ahead anyway, saying that as the parent company with a 57.5% stake, they’ve received “non-public” information about Immunovant. Roivant representatives declined to comment on the transaction. Completion of Roivant’s deal with Montes is expected in the third quarter, and more data about Immunovant’s drug may come out by then.
“The market would be happy with a premium transaction,” Baird’s Brian Skorney said about Immunovant, whose shares trade about 11% higher than when it merged with Health Sciences. “There’s been some ambiguity -- concerns about safety problems that cut the stock in half from highs. Maybe Roivant knows it’s a moderate issue.”
Roivant itself shows a paper gain of about 117% on Immunovant, with more than half coming from “earnouts” that granted Roivant more shares when milestones were met. They were worth a lot more back in February, before Immunovant plunged from more than $43 after pausing a trial of its IMVT-1401 for thyroid eye disease, citing elevated total cholesterol and low-density lipoprotein or LDL.
Immunovant's shares have plunged since then. And Roivant's pitch sounds tailored to investors who prefer risky biotech plays. And as Bloomberg points out, while Roivant's pitch is certainly enticing, it apparently wasn't enough to convince institutional money to stick around.
Some holders didn’t wait to see how it all turns out. Adage Capital Partners sold its entire stake in Immunovant during the first quarter. RTW Investments LP -- which is providing bridge financing for Roivant’s SPAC deal with Montes -- cut its holdings by 16% to 6.36 million shares, leaving it with a 6.5% stake. Representatives for Adage and RTW didn’t respond to messages.
So, with deals still coming to market despite SPACs having collectively lost a quarter of their market value YTD, it's pretty clear that Roivant is offering the deal to retail bagholders because, well, it's the company's only real option.